Conflict of Energy Forecasts: Saudi Aramco vs. International Energy Agency (Why a Trump administration should quit the IEA)

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Real Clear Energy

Fifty years ago, the economies of the West were reeling from the effects of an oil embargo imposed by the Organization of Petroleum Exporting Countries (OPEC) in response to the United States providing emergency military aid to Israel in the October 1973 Yom Kippur war. By January 1974, the embargo had nearly quadrupled the price of oil, driving up inflation and ending the postwar economic expansion.

The Nixon administration responded to this first energy crisis in two ways. In November 1973, President Nixon announced Project Independence: by 1980, America would meet its energy needs from its own energy resources. Though it took nearly four decades longer than Nixon envisaged, the U.S. finally became a net energy exporter in 2019, thanks to the shale revolution. In December 1973, Secretary of State Henry Kissinger proposed the formation of an energy buyers’ group to counterbalance the market power of the oil exporters, led by Saudi Arabia, an initiative that came to fruition with the setting up of the International Energy Agency (IEA) in November 1974.

Half a century later, something strange happened. The roles ascribed to championing producer and consumer interests suddenly reversed. At last month’s CERAWeek in Houston, Saudi Aramco CEO Amin Nasser poured cold water on the forced march of the energy transition, telling the conference, “the hopes and ambitions of 8 billion energy consumers around the world are at stake.” The message from consumers, he said, is that they want energy that protects the planet and their pocketbooks, “with minimal disruption to supplies and their daily lives.”

In the real world, Nasser pointed out, the energy transition is visibly failing despite the expenditure of $9.5 trillion over the last two decades. So far this century, the share of hydrocarbons in the global energy mix fell from 83 percent to 80 percent, while wind and solar supply less than 4 percent of world energy. Despite its marginally lower relative share, the absolute demand for hydrocarbons grew by almost 100 million barrels per day of oil equivalent. “Even coal is at record highs,” Nasser unfashionably observes.

Nonetheless, oil consumption in developing countries ranges from less than one barrel to below two barrels per person per year, compared with nine barrels for the EU and 22 barrels for the U.S. “The energy transition narrative will increasingly be written by the Global South,” Nasser points out. This leaves plenty of headroom for growing hydrocarbon demand. “Peak oil and gas are unlikely for some time to come, let alone [in] 2030,” Nasser concludes.

The Biden administration moved quickly to dismiss Nasser’s analysis. “Well, that is one opinion,” commented Energy Secretary Jennifer Granholm. “There have been other studies that suggest the opposite, that oil and gas demand and fossil demand will peak by 2030.” The other studies Granholm refers to are those by the IEA under its executive director, Fatih Birol. Most controversially, in 2021 the IEA published “Net Zero by 2050,” which claimed that investment in new oil and gas fields was no longer needed.